November 26, 2019

Simple as A-B-C? Proposed New Jersey Law Would Adopt Stricter Version of Independent Contractor Test

On November 7, 2019, a bill was introduced in the New Jersey legislature that would, like California’s AB 5, make it much more difficult for companies to classify workers as independent contractors.

Potential Legislative Changes

S4204 could reach a floor vote before the end of the year and would affirm New Jersey courts’ past application of its version of the ABC test. Under this test – which has applied to the state’s unemployment law, wage and hour law, wage payment law and other employment law contexts – an individual is considered an employee of the company he or she is working for unless hiring entities can establish that the following three factors are true:

  1. The individual is free from control or direction over the performance of services.
  2. The service is either outside the usual course of the business for which it is performed, or the service is performed outside of all the places of business of the enterprise for which it is performed.
  3. The individual is customarily engaged in an independently established trade, occupation, profession or business.

S4204 would adopt a stricter version of the ABC test by completely removing the ability for companies to satisfy prong “B” by showing that the work performed by the individual takes place outside of the company’s geographic places of business. Specifically, the bill provides that, for the purposes of all New Jersey employment laws, “individuals who perform services for remuneration shall be deemed employees, not independent contractors, and shall be subject to the provisions of those laws, and shall be entitled to all rights and remedies provided by those laws, unless and until it is shown to the satisfaction of the Commissioner of Labor and Workforce Development” that:

  • The individual has been and will continue to be free from control or direction over the performance of the service, both under the individual’s contract of service and in fact.
  • The individual’s service is outside the usual course of the business for which that service is performed.
  • The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the work performed.

As a result, a company operating in New Jersey would now only be able to satisfy prong “B” by showing that the work performed by the individual is outside of the company’s usual core business, without any consideration given to where the work is performed, making it even more difficult for companies to classify workers as independent contractors. In addition, S4204 also would add a requirement to prong “C” that the individual must provide the company with the same type of services they regularly provide in the course of their independently established profession or trade.

Claims Against Uber

Additionally, less than a week after the New Jersey bill was introduced, New Jersey’s Department of Labor and Workforce Development filed suit against Uber and its subsidiary, Rasier, in New Jersey state court alleging that the two companies collectively owe $523 million in unpaid unemployment and disability insurance taxes over the last four years. The department claims that Uber misclassified drivers as independent contractors when, instead, drivers should be considered employees. An additional $119 million in interest and penalties is also being sought as part of the lawsuit. New Jersey Labor Commissioner Robert Asaro-Angelo, quoted in multiple news outlets, said that “cracking down on employee misclassification” is a “priority” for the governor’s administration.

The lawsuit against Uber, considered in conjunction with S4204, represents a multi-pronged attack on both the definition and use of independent contractors in the State of New Jersey, following California in what may become a much broader trend of stricter scrutiny of independent contractor relationships across the country.

Faegre Baker Daniels will continue to monitor and report on legal developments involving worker classification matters.

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